Is Financial Advice Worth the Cost?

With financial advice costing hundreds or thousands of pounds, many would-be investors are asking themselves the question: Is financial advice worth the cost? Is it worth losing a small sum of money upfront, or is paying a financial adviser to help guide you almost like a form of investment in itself?

Let’s explore this question and look beyond at the value of financial advice. 

Is financial advice worth the cost?

Is financial advice worth the cost?

This will depend upon:

  1. The size of your investment portfolio
  2. Your starting level of knowledge
  3. Your confidence in making important financial decisions on your own
  4. Your trust in professionals and experts
  5. Your appetite for risk.

1. The size of your investment portfolio

The larger your investment portfolio, the more likely that investment advice will be the right decision for you. The reasons are twofold:

Firstly, advice is mostly a fixed cost, therefore it will feel proportionately cheaper for a larger portfolio. For example, a £1,600 fee to help you invest a £2,000 sum is clearly going to do more harm than good. 

But the same fee for a £250,000 portfolio would hardly be noticed. Such a large sum wouldn’t already be incurring £2,500 per year in underlying fund management charges, so a one-off advice fee of £1,600 feels like good value. 

Secondly, the larger the sum, the more you have to lose. If you waste a few months of savings in an investment scam, you can quickly recover. But if you lose half of your pension to an investment scam, your quality of life will be impacted. Therefore it pays to get a second opinion when so much is on the line. 

2. Your starting level of knowledge

Knowledge is difficult and expensive to acquire. While investment books and investing courses have certainly come down in cost in years, thanks to Amazon and the web respectively, they still demand a great deal of time. 

You could spend two years learning about investing on a part-time basis, and still not come close to expert status. And what if you want to invest immediately? By tapping into financial advice, you can skip forward in this process and forgo the education step. 

As a finance educator, I naturally want for everyone to seek out and gain a good level of financial knowledge – that’s why I founded Financial Expert.

That being said – if you lack the desire to become immersed in the financial markets (not everyone finds it even remotely interesting), getting advice is an honourable option! Ignorance, as they say, is not an excuse.

3. Your confidence in making important financial decisions on your own

Let’s get real. Investing can be scary. As well as the high stakes, there’s the sense of huge responsibility which comes with making financial decisions. 

Investing is a particularly harsh environment to learn in – because your mistakes come with an immediate financial cost. Making a poor investment and watching your money shrink in value can be a very humbling experience. 

I believe that to make some small mistakes is simply part of the learning experience, and you’ll never create the ‘perfect’ strategy the first time. An investor usually tweaks and refines their holdings over years until they’re comfortable. 

If however you don’t want the guilt or anxiety of having to make these judgement calls on your own, a financial advisor will be priceless. Knowing that you have followed the rigorous advice of someone who does this for a living will give peace of mind. 

4. Your appetite for risk

At the end of the day, whether you make an investment yourself, or you pay for financial advice, you will have an investment portfolio which is riskier than a bank account.

That being said, if your appetite for risk is very low, your investment portfolio will be weighted towards holding more corporate bonds and will have invested in fewer shares

A low risk portfolio like this will attract a much lower long term return. The return may be so similar to the interest rate on savings accounts, that you might wonder why did you bother – particularly after you factor in the cost of the advice. 

An investor who is willing to take on more risk, will be able to leverage an adviser to access a much higher-returning portfolio which will enable the cost of the advice to be covered much more easily. 

Overall: is financial advice worth the cost?

In summary, there are lots of factors which impact whether financial advice is worth the cost, but it ultimately depends upon your circumstances. 

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